Alcatel in China: Fortune Cloudy
The move is the latest in a series of puzzling maneuvers by companies jostling for position in China's fiber market (see Furukawa Looks to Cable China). And it looks as if the move could be either well- or ill-advised.
On the one hand, the Chinese market is tough to get a bead on. "The fiber market in China is very dynamic, very complex," says Patrick Fay, analyst at KMI Corp., which follows the fiber market. He says that while his firm still views China, after Japan and the U.S., as one of the top three fiber markets worldwide, economic factors have reduced KMI's forecast for fiber installation in China.
"At the end of last year, we thought 11 to 11.5 million kilometers of fiber would be installed in China this year," Fay says. "Now it looks more like 7 to 8 million km. So there's been some downsizing in anticipated deployments."
Indeed, recent financial news from other market leaders with heavy investments in China couldn't be worse. Corning Inc. (NYSE: GLW), which, according to KMI, shares over 50 percent of the worldwide fiber market, along with Alcatel and Lucent Technologies Inc. (NYSE: LU), has acknowledged the China market hasn't panned out as planned (see Corning: 'We've Hit Bottom').
Recently, Corning has been bleeding losses, despite having its own joint venture in China (see Corning: 'We'll Do What It Takes' and Corning Works China).
Does this mean Alcatel's on track for disappointment? It's tough to tell. Certainly, it relies on fiber to some extent, which makes new ventures risky. The company won't say how much revenue it gets from its fiber business. But last quarter, Alcatel's optics division, which includes optical fiber, represented €1,969 million (US$1,915 million), while the entire company reported quarterly sales of €4,235 million ($4,120 million).
Alcatel's also been active in China for awhile. One key investment has been a 50 percent stake in Shanghai Bell (now Alcatel Shanghai Bell Co. Ltd.), a local exchange carrier. Apparently, that deal indicates Alcatel's relative success in scoping China's business landscape.
Alcatel also has something else sussed -- the need for a government partner in the fiber business. In this latest joint venture, it's pairing up with Fiberhome, a company affiliated with Wuhan Research Institute, which is referred to as a "national research base" for China's government and which has sponsored a range of telecom companies through joint stock ownerships.
What's more, at least one source, who asked not to be named, says not all companies experience the same level of difficulty when it comes to the Chinese telecom market. Alcatel, for instance, may find doors open to it that have been closed for others -- and vice versa.
In the end, while the China fiber market remains volatile and mysterious, it looks as though at least some opportunity may be present. And if it is, Alcatel appears to have as good a shot as any.
— Mary Jander, Senior Editor, Light Reading